Natural Gas Processing Capacity Rises in Lower 48 Production Areas

U.S. natural gas processing capacity has increased in recent years, and both capacity and throughput show a net increase of about 5% in the Lower 48 states between 2014 and 2017, based in Energy Information Administration (EIA) estimates. Growth was largely concentrated in areas of high natural gas production growth, such as the Appalachian Basin in the Northeast, the Permian Basin in West Texas and southeastern New Mexico, and the Haynesville Shale in Texas and Louisiana.

State-by-state changes in processing plant capacity and throughput do not correlate perfectly with changes in natural gas production, notes EIA, despite the link between the two. In regions where infrastructure is already well developed, such as along the Gulf Coast, new processing capacity may not be necessary to accommodate production increases because existing processing plants may be able to operate at higher utilization rates, and volumes may be processed in another state or may not require processing to satisfy pipeline standards.

Because midstream infrastructure development— the construction of natural gas processing plants and pipelines—requires a longer lead time and significant financial outlay, production growth can initially outpace infrastructure development. EIA reports that data suggest processors are addressing regional processing bottlenecks by adding processing plants or expanding processing capacity, and that in regions where production is declining, processors are idling, retiring, or running processing plants at lower utilization rates.

Processing capacity and processing plant through-put increased on a net basis by about 5% between 2014 and 2017 despite a decreasing number of active process- ing plants. As of year-end 2017, 510 active midstream natural gas processing plants were operating, including midstream plants that send processed natural gas to market and excluding compressor stations and plants that only re-pressurize natural gas. Changes in the count between 2014 and 2017 are due to plants opening, retiring, or falling out of scope.

EIA estimates that natural gas processing capacity increased by about 5% in the Lower 48 states on a net basis between 2014 and 2017. States showing the highest volumetric growth over the period are Texas and surrounding states, states in the Appalachian Basin, and North Dakota and Montana near the U.S. portion of the Bakken formation. The agency calculates that processing plant capacity grew most rapidly in Texas, increasing by about 3.7 Bcfd, or by about 15%. During this period, however, natural gas production in Texas declined—likely related to the commodity price, which fell substantially between 2014 and 2017 from $4.37/MMBtu to $2.99/MMBtu.

Oklahoma had a similar increase in processing capacity, expanding by 1.3 Bcfd, or 19%, while production grew by only 8%. Processing plant capacity may have grown regardless of production because of the significant lead time and financial investment required to build midstream infrastructure. In addition, the U.S. Gulf Coast features a large network of natural gas pipelines, giving producers in the region access to multiple processing facilities and options to process gas in nearby states.

In the Appalachian Basin in the Northeast, West Virginia showed a large increase in processing capacity, up about 1.4 Bcfd, or 35%, relative to 2014. Similarly, capacity in Pennsylvania rose by about 0.4 Bcfd, or 49%. Processing capacity in Ohio remained essentially flat, despite a significant increase in production. Many processing plants in the region are located close to shared borders between Pennsylvania, Ohio, and West Virginia, which may explain the minimal change in Ohio’s capacity because natural gas produced in one state can be processed in another.

In the Bakken formation near the northern border of the U.S., North Dakota processing capacity expanded by 0.9 Bcfd, and Montana by 0.5 Bcfd. In recent years, producers in the Bakken have flared large volumes of natural gas, in part because the associated natural gas produced as part of crude oil production often lacked both pipeline infrastructure to reach end-use consumers and the processing infrastructure to remove heavier hydrocarbons. In the last few years, natural gas production in the region has increased faster than oil production, and this increase is partly attributable to the infrastructure buildout in the region, which has helped reduce flaring.

Wyoming experienced marked declines in natural gas processing capacity during the 2014-2017 period, driven partly by consistent declines in natural gas production from coalbed methane, a source that accounts for much of Wyoming’s output. Traditional production from natural gas wells also declined in the state. Louisiana experienced large decreases in processing capacity, likely related to the long downward trend in offshore production in the Gulf of Mexico.

In the Lower 48, natural gas processing plant throughput both increased 5% between 2014 and 2017 on a net basis, according to EIA estimates, and dry production increased by slightly less than 5% nationally during that period. Trends in processing throughput typically track trends in processing capacity. Volumes of natural gas processed increased the most in Texas and West Virginia and decreased the most in Wyoming and Louisiana.

Utilization rates of natural gas processing plants, defined as the ratio of throughput to capacity, remained stable between 2014 and 2017 on a net basis, although results for individual states differed substantially. States with large production growth tended to have higher utilization rates in 2017. The utilization rate in Texas, which saw a sharp rise in capacity during the report period and a decrease in natural gas production, declined from 75% to 69%. Louisiana, Oklahoma, and New Mexico experienced similar decreases in utilization. States in the Appalachian Basin tended to show large increases in processing plant throughput, reflecting increased demand for processing as production grew during the period. Utilization in Ohio increased from 55% to 63%, and utilization in West Virginia increased from 66% to 79%. Utilization in Pennsylvania stayed essentially flat, while that in the Bakken increased to accommodate production growth.

Utilization in North Dakota jumped from 62% to 79%, and Montana from 76% to 96%. As dry-gas production increased by 5% between 2014 and 2017, natural gas plant liquids (NGPL) output climbed by about 19%. NGPLs are more energy-dense than dry natural gas, so this is likely the reason that Btu content has trended higher in many states and at the Lower-48 level over the period.

(SOURCE: The

, March 11, 2019)